Snowmobile and ATV maker Arctic Cat (NASDAQ:ACAT) is all geared up to report its fiscal Q1 2007 earnings tomorrow morning. Let's first go over a few of the numbers relevant to the report, then look at a related issue.

What analysts say:

  • Buy, sell, or waffle? Five analysts ride herd on Arctic Cat. Four of them continue to rate it a hold, and one still rates it a sell.
  • Revenues. Analysts are looking for a 13% decline in quarterly sales to $93.9 million.
  • Earnings. Instead of last year's profit, they expect a $0.28-per share loss tomorrow.

What management says:
CEO Christopher Twomey led off his company's 2006 annual report a few weeks ago by highlighting continued growth in ATV sales -- but no sooner had he bragged of this than he admitted that profits were hurt by the need to offer incentives to make these sales. Additional sales incentives were plowed into the snowmobile market, but thanks to "poor snowfall in the East and Midwest," sales declined regardless.

Although Twomey pronounced himself "disappointed" with the resulting 12% decline in profits per share in 2006, management expressed its belief that better days are ahead by investing in its own shares. During the fiscal year, Arctic Cat repurchased 727,000 of its own shares, or nearly 4% of shares outstanding. The $10.5 million in share-repurchase authorizations remaining at the end of the fiscal year would suffice to buy back another 3%, should the company want to. What's more, with nearly $70 million in cash and no long-term debt on its balance sheet, Arctic Cat is more than able to fulfill its buyback authorization in full, and at will.

What management does:
Mainly, management watches its margins melt away like the hopes of last year's snowfalls. Whichever level you choose to look at -- gross, operating, or net -- the rolling margins are down markedly from a year ago.

Margins %

12/04

3/05

6/05

9/05

12/05

3/06

Gross

19.3

19.7

20.0

19.4

19.0

18.6

Op.

5.2

5.8

5.8

5.5

5.2

4.5

Net

3.6

4.1

4.1

3.9

3.7

3.2
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
"And now, a word from our sponsor." No, not really, although the following may read a bit like an advertisement. In response to a Foolish Forecast I did on Arctic Cat back in May, an officer from a company that that practices "weather risk management" wrote me to suggest that Arctic Cat's woes may not be entirely out of its control after all.

This company sells "weather derivatives," which are put options on snowfall levels in a basket of cities. At the risk of oversimplifying, by purchasing these options, a company such as Wal-Mart (NYSE:WMT) can hedge the risk of a freak blizzard blanketing the Northeast on Dec. 20 and hurting its Christmastime sales. On the other side of the equation, a company such as Arctic Cat, which actually likes snowstorms -- and the more the merrier -- can hedge the risk of having snow go missing the whole winter long.

Just a word to the Foolish: When Arctic Cat blames clear and sunny skies for having a bad quarter in the future, we've got to consider the possibility that Mother Nature may not deserve all of the blame.

Competitors:

  • Deere (NYSE:DE)
  • Cycle CountryAccessories (AMEX:ATC)
  • Polaris (NYSE:PII)

Customers:

  • AGCO (NYSE:AG)

Suppliers:

  • Hawk (NYSE:HWK)

Roll this cat over, and roll the clock back. Take a look at what we forecast last quarter, and how the company actually performed, in:

Wal-Mart is part of theMotley Fool Inside Valueuniverse, where we recommend undervalued stocks of great companies. You can try Inside Value free for 30 days.

Fool contributorRich Smithdoes not own shares of any company named above.